IP: FTC advertising enforcement on social media

Since the Federal Trade Commission’s revised “Guides Concerning the Use of Endorsements and Testimonials in Advertising” went into effect in December of 2009, the onus is clearly on advertisers to both monitor endorsers on social media forums and to ensure that endorsers very clearly disclose any material connection with the advertiser.

The FTC’s revised Guides reflect the concern that social media promotions, such as promotions through blogs, sometimes confound the public’s ability to distinguish between unbiased opinions and advertising, creating greater risks for consumer deception and confusion. Accordingly, the Guides apply to "any advertising message ... that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser," and require the disclosure of “material connections” among endorsers and a seller. If a connection, such as employment or other compensation, “might materially affect the weight or credibility of the endorsement” and the connection would not be “reasonably expected by the audience,” then it must be disclosed.

The FTC’s first public investigation involving social media since the revised “Guides” went into effect involved women’s apparel retailer Ann Taylor LOFT and “compensated bloggers.” (See: Ann Taylor Stores Corp., FTC File No. 102-3147.) LOFT held a preview show to promote its 2010 collection and encouraged attendees to blog about the show by offering them an opportunity to win a $10 gift card. LOFT posted signs directing the potential bloggers to disclose the gift card incentive, but some bloggers failed to disclose.

The FTC investigated but ultimately decided not to pursue an enforcement action, citing mitigating factors such as the one-time only nature of the preview show, the small number of bloggers and the even smaller number of bloggers who failed to disclose the gift card incentive. The FTC also noted Ann Taylor’s subsequent adoption of a written policy providing that Ann Taylor would not give gift incentives to any blogger without first requiring the blogger to disclose the gift incentive in the blog. In closing the matter, the FTC advised that it “expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers’ compliance with the obligation to disclose the gifts they receive from LOFT.”

The fact that the “Guides”were new, and that this was the first public investigation, may explain the FTC’s leniency. Although the FTC did not pursue enforcement, the investigation sent a clear warning that advertisers must ensure that compensation and other connections between advertisers and endorsers are clearly disclosed.

The FTC’s second public investigation resulted in an enforcement proceeding finding that Reverb Communications, a public relations agency, was liable for failing to sufficiently disclose its material connection to a client while promoting the client’s gaming software with very favorable public reviews on the iTunes store. (See:In the Matter of Reverb Communications, Inc., FTC Docket No. C-4310.)

The FTC found the reviews would create the false impression that they originated from ordinary users of the software rather than compensated parties working on the behalf of the software developer, and the commission considered this undisclosed relationship material to consumers’ purchasing decision. Accordingly, it required Reverb to take reasonable steps to remove the endorsements and barred it from publishing reviews of any product where a material connection exists unless the connection is “clearly and prominently” disclosed.

The FTC set forth the standard for “clear and prominent” disclosure with reference to various media. In text communications, the disclosure must be “sufficiently noticeable” for an “ordinary consumer” to read and comprehend. The same standard applies to disclosures in video advertisements with the additional requirement that disclosures appear for a sufficient time on screen. For audio communications the disclosure must be of sufficient volume and cadence for an ordinary consumer to hear and understand. Similarly, disclosures in interactive media advertisements, such as Internet and software, must be “unavoidable” and consistent with the requirements for text, audio and video disclosures.

In a third recent action, the FTC elaborated on advertisers’ obligation to monitor endorsers. (See:In the Matter of Legacy Learning Systems Inc., FTC File No. 1023055.) In this matter, the advertiser, Legacy, solicited online endorsements by “Review Ad Affiliates,” which would receive commissions on each product sale resulting from one of their referrals.

Although Legacy required the Affiliates to sign a contract pledging their compliance with the FTC’s revised “Guides,” the FTC nevertheless found that it failed to implement a reasonable monitoring program to ensure the Affiliate’s clearly disclosed their relationship to Legacy. According to the FTC, many Affiliates provided inconspicuous disclosures or no disclosure at all. The FTC concluded the reviews were false and misleading and that the failure to disclose was a deceptive practice. The advertiser agreed to a consent order including a $250,000 civil penalty, requirements for clear and prominent disclosures and a burdensome, 20-year monitoring program with monthly reporting requirements.

Social media advertisers may draw several lessons from the FTC’s recent activities. For example, even relatively minor compensation, such as the $10 gift cards for bloggers in the LOFT matter, may establish a material connection that must be disclosed. Moreover, when advertising through social media, such as blogs and message boards, it is not enough to merely warn content posters of the material connection disclosure obligations. Instead, the advertiser must monitor the posts to ensure compliance with the obligations and the advertiser’s monitoring must be effective. Advertisers must adopt written compliance policies advising those employees and affiliates who also serve as endorsers of their obligations under the revised “Guides” and provide for effective compliance monitoring and enforcement procedures. Where a material connection exists, the burden is squarely on the advertiser to police and ensure compliance despite the inherent policing difficulties presented by social media.